Is ‘Sell in May and Go Away’ Really a Good Investment Strategy?
Written by
John Csiszar
Edited by
Zuri Anderson
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One of the most talked-about strategies on Wall Street is to “sell in May and go away.” While often said tongue-in-cheek, there’s actually some validity to the concept that investors can sit out six entire months of the year and still perform well.
But as an overall investment strategy, does “sell in May” really work, or is it more of a gimmick? Here’s a look at how the adage originated, what the statistics really say and if you should actually consider implementing it into your long-term investment strategy.
The Historical Data
The idea behind the “sell in May” strategy originated way back in the 1700s in London, when most wealthy investors would leave town for the summer. This would dry up market activity and often lead to slumping prices, as there is lower volume and no momentum to move shares higher.
While this theory might be conceptually sound, what does that data actually say?
Believe it or not, there’s actually some merit to the idea. Historical data since 1950 shows that the S&P 500 has consistently outperformed in the November to April time period as opposed to May to October. According to data from Forbes, from 1970 to 2023, the S&P 500 returned 6.5% on average in the November to April period versus just 1.6% in the May to October period. For the Dow and the Nasdaq, the differential is even greater.
As with anything that might seem too good to be true, of course, there’s a catch to this data. While moving out of the market in the May to October period seems to be a great way to outperform, there’s actually an even better way to invest, one that takes less effort and provides better results: Simply staying fully invested.
Even though you would do better if you invested in November to April instead of May to October, you would have outperformed both periods if you simply remained invested for the entire year. From 1975 to 2024, $1,000 invested would have grown to $64,053 under the “sell in May and go away” strategy, according to American Century Investments. That’s good enough for a cumulative return of 6,305%.
However, if you were fully invested for that entire period, your $1,000 would have grown to $340,910, a return of 33,991%. By simply “doing nothing,” you would have earned more than five times as much money than if you pulled your money out every May to October period.
The Bottom Line
While “sell in May and go away” has some merit, at least when compared with the returns during the rest of the year, it’s problematic in that it encourages investors to time the market. The reality is that investors who stay the course and remain invested for the entire year greatly outperform the market timers.
Even if you were to rely on the “sell in May” strategy, it’s far from a perfect barometer. There are numerous examples of years in which markets have actually outperformed during the summer months.
After the pandemic selloff at the beginning of 2020, for example, markets skyrocketed higher in the ensuing months. Those who sold out in May missed one of the best market recoveries in history. The bottom line is that any type of market timing, even the type that has some seasonal merit, is generally detrimental to the long-term health of your portfolio.
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